Mike "Mish" Shedlock: "Ben Tre Logic"

"As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system." Roubini, Richardson, and Greenspan are using Ben Tre Logic.

Ben Tre Logic:

One of the most famous quotes of the Vietnam War was a statement attributed to an unnamed U.S. Air Force Major by AP correspondent Peter Arnett. Writing about the provincial capital, Ben Tre, on February 7, 1968, Arnett said: "'it became necessary to destroy the town to save it,' a U.S. major says." To this day, "Ben Tre logic" is a common saying for whenever a "logical" conclusion is to destroy something out of the perceived best interests of everyone involved.

Roubini is a fantastic economist when it comes to analyzing current data and seeing the problems coming down the road. I hold him in high regard. However, Roubini is simply not a free market economist. Please read "Roubini Misses the Boat on Regulation" for more evidence. Roubini blames lack of regulation for the problems we face when the real problem is misguided regulation, micromanagement of interest rates by the Fed, and indeed the very existent of the Fed itself.

It is impossible to save a free market by abandoning it. Unfortunately, many try. What Roubnini, Greenspan or any other proponent of bail-outs, nationalization, etc. fails to explain, or even mention is this: Why can we not just let them fail? Let them go bankrupt! Why not? This is not the first time in history that banks are keeling over, and won't be the last time, especially if we have a Fed attempting to micromanage the economy. Sure, it's going to be painful, but it's only going to be painful ONCE.

Banks who were prudent and foresaw the collapse are waiting in the wings to take over already. Why should they be forced to compete with state-owned zombies? The argument that we cannot afford to let the big banks fail is nonsense. In Russia in 1998, 95% of all banks failed. What happened afterwards? A big economic boom. When Russia had the opportunity to start with a clean slate , things quickly came right again. Of course, the Russian government also instituted a 13% flat tax, an important contributor to the economy's rebirth. Everyone proclaims the Swedish nationalization "worked". However, correlation is not causation. The miracle Swedish recovery is more likely to have stemmed from a global economy that was starting to boom and strengthened by an internet and productivity revolution in its early stages, than a brilliantly executed nationalization plan. Here's the deal....

1. You cannot save a village by destroying it.
2. You cannot save capitalism by destroying it.
3. You cannot save a free market when you don't have one in the first place."

- Mike "Mish" Shedlock, http://globaleconomicanalysis.blogspot.com